Archive
The shock absorbing role of cross-border investments: net positions versus currency composition
Joint work with Beren Demirölmez and Martin Schmitz
Abstract: We present a comprehensive analysis of the shock absorption role of external positions using the currency exposures dataset by Bénétrix, Gautam, Juvenal, and Schmitz (2020). While the literature has frequently studied how the net international investment position and its currency composition determine the direction and scale of valuation effects, we focus on their amplitude. This is of central importance for global financial stability given the large and increasing scale of external balance sheets. To that end, we propose an indicator showing the extent to which external positions absorb or amplify exchange rate shocks. Analysing a set of 50 countries over the period 1990-2017, we find the external shock absorption role to be present for advanced economies, while this was initially not the case for emerging markets economies (EMEs). In recent years, however, EMEs’ external positions increasingly showed a shock absorption capacity. Our regression-based analysis reveals that the level of economic and financial development is associated with a greater capacity to absorb exchange rate shocks.
Uncertainty Shocks and the Cross-Border Funding of Banks: Unmasking Heterogeneity
Joint work with Michael Curran
Abstract: This paper looks at the relation between uncertainty shocks and cross-border funding of banks through the lens of a new dataset. Our key innovation is to study the impact of uncertainty measures based on volatility, newspapers, and professional forecast surveys. We provide a comprehensive assessment of how cross-border liabilities in different banking systems respond to the uncertainty type, funding sector, country, and period. We show that the contraction of bank funding can be large and quite different along these dimensions. Volatility-based uncertainty and non-bank funding display the strongest results, with news-based uncertainty mattering most outside the Global Financial Crisis
Downloads: TEP0920, short version (May 2021), data, appendix
Cross-Border Currency Exposures. New evidence based on an enhanced and updated dataset
Joint work with Deepali Gautam, Luciana Juvenal and Martin Schmitz.
Abstract: This paper provides a dataset on the currency composition of the international investment position for a group of 50 countries for the period 1990-2017. It improves available data based on estimates by incorporating actual data reported by statistical authorities and refining estimation methods. The paper illustrates current and new uses of these data, with particular focus on the evolution of currency exposures of cross-border positions.
- Download options: Trinity College Dublin, ECB, IMF
- Data file
Financial deglobalisation in banking?
This is joint work with Robert McCauley, Patrick McGuire and Goetz von Peter and published in the Journal of International Money and Finance: 94(C): 116-131, 2019.
Abstract: This paper argues that the decline in cross-border banking since 2007 does not amount to a broad-based retreat in international lending (“financial deglobalisation”). We show that BIS international banking data organised by the nationality of ownership (“consolidated view”) provide a clearer picture of international financial integration than the traditional balance-of-payments measure. On the consolidated view, what appears to be a global shrinkage of international banking is confined to European banks, which uniquely responded to credit losses after 2007 by shedding assets abroad – in particular, reducing lending – to restore capital ratios. Other banking systems’ global footprint, notably those of Japanese, Canadian and even US banks, has expanded since 2007. Using a global dataset of banks’ affiliates (branches and subsidiaries), we demonstrate that the who (nationality) accounts for more of the peak-to-trough shrinkage of foreign claims than does the where (locational factors). These findings suggest that the contraction in global lending can be interpreted as cyclical deleveraging of European banks’ large overseas operations, rather than broad-based financial deglobalisation.
Cross-country Exposures to the Swiss Franc
This is joint work with Philip Lane published as a book chapter in International Currency Exposure, Edited by Yin-Wong Cheung and Frank Westermann MIT Press, 2017.
Abstract: This paper first documents the foreign currency exposures of Switzerland in the 2002-2012 period. We find that the large scale of the Swiss international balance sheet means that movements in the Swiss Franc generate large cross-border valuation effects. Second, we examine the Swiss Franc holdings of the rest of the world and highlight differences in exposures between advanced and emerging economies.
International Currency Exposures, Valuation Effects and the Global Financial Crisis
This is joint work with Philip Lane and Jay Shambaugh and published in the Journal of International Economics, 96: 98-109, January 2015
Abstract: We examine the evolution of international currency exposures, with a particular focus on the 2002–12 period. During the run up to the global financial crisis, there was a widespread shift towards positive net foreign currency positions, such that relatively few countries exhibited the archetypal emerging-market “short foreign currency” position on the eve of the global financial crisis. During the crisis, the upheaval in currency markets generated substantial currency-generated valuation effects — much of which were not reversed. There is some evidence that the distribution of valuation effects was stabilizing in the sense of showing a negative covariation pattern with pre-crisis net foreign asset positions.
The Spread of Manufacturing to the Poor Periphery 1870‐2007
This is joint work with Kevin O’Rourke and Jeffrey Williamson. It is published in the Open Economies Review 26(1): 1-37, January 2015
Abstract: This paper documents industrial output growth around the poor periphery (Latin America, the European periphery, the Middle East and North Africa, Asia, and sub-Saharan Africa) between 1870 and 2007. We find that although the roots of rapid peripheral industrialization stretch into the late 19th century, the high point of peripheral industrialization was the 1950–1973 period, which saw widespread import-substituting industrialization. This period was also the high point of unconditional industrial catching up, defined as the tendency of less industrialized countries to post higher per capita manufacturing growth rates, and which occurred between 1920 and 1990.
Fiscal Shocks and The Real Exchange Rate
This is joint work with Philip Lane and published in the International Journal of Central Banking 9(3):1-32, September 2013.
Abstract: We estimate the real exchange rate impact of shocks to government spending for a panel of member countries of the euro area. Our key finding is that the impact differs across different types of government spending, with shocks to public investment generating larger and more persistent real appreciation than shocks to government consumption. Within the latter category, we also show that the impact of shocks to the wage component of government consumption is more persistent than that of shocks to the non-wage component. Finally, we highlight the different exchange rate responses between this group and a group of countries with floating exchange rates.
From The Irish Economy blog
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- National Income: 2 – From Production Value to Added Value – Getting to GDP
- Irish Economic Association Annual Conference 2023 (Updated)
- National Income: 1 – From Turnover to Production Value
- Professor Christopher Whelan, RIP
- Barrington Prize, 2022/2023
- Online Event: Reconstructing the Economy of Ukraine
Agustín Bénétrix 